Federal Reserve Bank of Cleveland President Loretta Mester said Tuesday that she is still optimistic about the pace of the U.S. economic recovery, despite a disappointing April jobs report.

On Friday, the Bureau of Labor Statistics reported that the U.S. economy added only 266,000 jobs in April, well short of expectations for 1 million.

“It was a disappointing report, but I don’t think it changes my outlook. I think the outlook is still bright,” Mester told Yahoo Finance in an exclusive interview Tuesday.

The Cleveland Fed chief said the Fed should continue to keep short-term interest rates at near-zero and maintain its quantitative easing program, which has been absorbing about $120 billion a month in U.S. Treasuries and agency mortgage-backed securities.

The Fed has said it will continue those asset purchases until the economy looks like it has made “substantial further progress” towards its goals of maximum employment and stable prices.

“We’re not there yet,” Mester said.

Mester acknowledged "upside risks" in inflation, but pointed out that higher readings are likely due in part to year-over-year comparisons against months in 2020 when prices collapsed. Supply chain issues affecting various sectors will also likely contribute to rising prices, Mester said.

She said her expectation is to end 2021 with above 2% inflation, as measured in core personal consumption expenditures (the Fed’s preferred measure of inflation). The Fed’s target on inflation is 2%.

“Seeing inflation move up to two and somewhat above 2 [percent] is not a problem,” Mester said.

Amidst the Fed's easy money policies, Mester said she sees some "upward valuation pressure" in stock markets, but said she does not currently see "elevated risk" in the overall financial system.

Labor market's 'ups and downs'

Mester added that with over 8 million Americans still out of jobs compared to pre-pandemic levels, she wants to see more progress on the recovery before the Fed begins winding back its support.

“I think we’re going to see some ups and downs as we open up more,” Mester said. “There’s some parts of the economy that are still very weak.”

She added that there are a number of reasons for why job gains missed estimates for April, noting that the vaccination rates are still not high enough to alleviate fears of going back to the workplace. With schools still closed, Mester said childcare is also holding back women from returning to the workforce.

[Read full transcript of Yahoo Finance Live's interview with Cleveland Fed President Loretta Mester]

The Cleveland Fed president added that extra unemployment insurance provided from COVID relief bills may be keeping workers at home.

“I don’t think that’s the main issue, I think these other issues are playing a larger role and it’s just going to take time for those to work themselves through,” Mester said.

Until then, Mester said she remains optimistic about the economic recovery. Her remarks echo those of San Francisco Fed President Mary Daly, who told Yahoo Finance on Monday that she remains “bullish about the future.”

The central bank’s next policy-setting meeting is scheduled to take place June 15 and 16.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

• Fed needs to 'stay steady' after disappointing April jobs report: San Francisco Fed's Daly

• Fed flags Archegos, meme stocks as examples of 'elevated' risk-taking

• Yellen: Higher interest rates may be needed to prevent economy from 'overheating'

• Less-educated Asian Americans among hardest hit by job losses during pandemic

• A glossary of the Federal Reserve's full arsenal of 'bazookas'

Read the latest financial and business news from Yahoo Finance

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit